Loan for troubled energy giant

The Government today stepped in with a £410 million support package for crisis-hit nuclear group British Energy - but the firm's long-term future remains in the balance.

The loan was agreed after British Energy warned last week that it could face insolvency if it did not receive immediate financial assistance.

However the deal is only a short-term solution and the group still needs to find a long term answer to its problems.

Shares in the group, which have been suspended from trading since last week's announcement, returned to the London Stock Exchange and immediately slumped by around 80%, down 63 3/4p to 17 1/2p.

The share price fall means the group is now worth around £100 million. Prior to suspension of the shares it was worth more than £500 million.

Andrew Fisher, an analyst at fund manager Gerrard, said: "It remains to be seen how much further the business's operational performance has been hurt following the suspension of its shares and the downgrade of its debt."

British Energy, which provides a fifth of the UK's power, has been hit by the sharp fall in electricity prices and a shutdown at one of its power stations.

Its financial crisis has caused concerns that lights could go out across the UK and that jobs could be lost.

The group said today's agreement would allow it to stabilise its trading position in the UK and North America, but said the agreement would mature on September 27 and it was expected that talks regarding longer-term restructuring would start shortly.

And it warned again that if these talks failed it may fall into insolvency.

It said: "The board has reasonable grounds for believing that these discussions will be successful but there can be no certainty that this will preserve value for investors.

"The board anticipates that if these discussions are not successful the company may be unable to meet its financial obligations as they fall due and therefore the company may have to take appropriate insolvency proceedings."

In a statement the Department of Trade and Industry (DTI) said: "The Government has today agreed to provide British Energy with a loan for up to £410 million in respect of its working capital requirements and cash collateral for trading in the UK and North America.

"The short term loan has been put in place in respect of the period until 27 September 2002, pending clarification of the company's full financial position.

"No decisions have been taken, and no commitments have been given, about support beyond this period.

"Notification of this loan under EU state aid legislation is under way.

"The Government's paramount objectives continue to be ensuring the safety of nuclear power stations and maintaining the security of electricity supply."

The move was welcomed by union leaders, who said it should safeguard the group's 5,200-strong UK workforce.

However, unions said a long-term solution was still desperately needed.

John Edmonds, general secretary of the GMB said: "This is a welcome announcement to provide a short-term lifeline for the industry.

"But we now need a complete rethink of the role of the private sector in major UK utilities.

"We cannot continue to gamble the future of such an important sector on the roulette wheel of the Stock Exchange."

Doug Rooney, national officer at Amicus, said he was relieved that jobs had been saved at the company but it was imperative that a long term solution to its financial problems was now found.

Mr Rooney said it was clear that the company's finances were in a "serious" state.

He said: "If we get to the end of the month and the company has not secured a long-term financial settlement we will be saying that rather than put a company into voluntary liquidation the Government should put it back into public ownership.

"It is difficult to see what other alternatives the Government could come up with to secure the long-term financial position of British Energy."

Union leaders are pressing for an urgent meeting with the Government later this week over the crisis.

Shadow trade and industry secretary Tim Yeo said the Government should reduce some of the burdens on the company.

"Rather than bailing out British Energy the Government should be treating the causes and not the symptoms of this problem.

"Immediate relief is possible. As Britain's leading carbon-free energy producer, British Energy should be exempted for the Climate Change Levy.

"Secondly, the reprocessing costs borne by British Energy in this country should be brought more into line with those it pays in North America.

"At a time when investor confidence is crucial the Secretary of State must show leadership and remove the unnecessary cost burdens on nuclear industry."

The move was also criticised by green groups.

Bryony Worthington, nuclear campaigner at Friends of the Earth, said: "The Government should have allowed British Energy to go into administration rather than bailing it out with a loan.

"With a market value of just £404 million and existing debts of around £850 million no commercial lender would have lent this incompetent company any more money. Yet we the taxpayers are being asked to carry the risk.

"This financial fiasco must force the Government to realise the folly of building new nuclear power stations. They are uneconomic, unsafe and deeply unpopular and are not needed to combat climate change. Nuclear power should be phased out and replaced with clean, safe and renewable forms of energy."